Culture of Innovation is Key to Recovery

According to the Conference Board’s 2013 CEO Challenge Study* , “Slow to no recovery in mature markets is now joined by slowing growth in emerging markets, limiting global growth to three percent.” What CEO in their right mind would be satisfied with that kind of anemic growth? At this time, and perhaps in a unique moment in capitalism, we can no longer expand by geographic distribution as our local markets are saturated and the growth rates of the emerging markets and BRIC nations are slowing.

The focus must shift to innovation, as simply “improving” our way out of this by tweaking cost structures, enhancing logistics, and improving customer service will not give shareholders the kind of returns they expect. But all this rhetoric about the need for innovation is not new, so why aren't CEOs doing more about it? Because they are chasing down the wrong alleys. We have new and wonderful tools such as Design Thinking, Open Innovation, and a new “C Level” title, the Chief Innovation Officer.

These solutions are scratching the surface and not addressing the real limits to innovation. The key to unlocking the door to innovation is to develop a Culture of Innovation. Without the right culture, no set of tools, methods, or people will be successful. Why is culture the determining factor? There is nothing more fragile, and at the same time, more threatening as a radical new idea that does not fit in the current culture. Most of the cultural characteristics that enable companies to be successful are the same characteristics that extinguish new ideas. Most companies value predictability, control, reliability, repeatability, and continuity above innovation and creativity.

Unfortunately, some of the worst behaviors we see in managers can do serious damage to any part of the culture that encourages innovation. These behaviors would cause just about any CEO to be riled up. Examples of these behaviors include early and public criticism of ideas, making criticism personal, attacking an individual with his/her idea, and political behavior such as always wanting to look good, be right, and be safe. Now this is just bad behavior, but we have seen more subtle ways in which fear limits innovation.

For example, we heard of a situation where a new “social community for innovation” was established with much fanfare and anticipation. But it failed to meet its expectations because on one wanted to post his/her ideas to the site. The managers did some rapid and early interventions to see what was wrong. They found, to their amazement, that most of the managers they interviewed would never post because there was no upside to sharing their ideas; and even worse, they felt that if they said the wrong things, they might get castigated or even get fired. Needless to say, the community struggled. In this company, the culture was so negative that it will be very difficult to engage the employees in innovative behaviors until they address underlying cultural issues.

On the other hand, a company that has a fantastic culture of innovation is the Bose Corporation, where one of us (Carter) once worked. The culture of innovation there started right at the top with the founder, Dr. Amar Bose, who was the consummate innovator. But it did not stop there. He fostered innovation at all levels and in all departments, not just engineering. He did this by encouraging innovation by all people, in all departments and granted budgets to do so. Furthermore, he strongly believed in the long-term outlook that innovation requires, and understood that many, many good ideas often come close to total failure; but perseverance often pays off when you have the right people working on them.

What is the culture of innovation?

• A culture that invests in its people;

• A culture that tolerates risk, and failure;

• A culture that supports inquiry and the scientific method;

• A culture of trust;

• A culture that encourages opposing points of view;

• A culture that bans politics;

• A culture that embraces the individual.

Unlike financial performance or customer satisfaction, the Culture of Innovation is hard to measure unless you look at its outputs. Nevertheless, there are predictive indicators. We look for some indicators of the Culture of Innovation such as the explicit earmarking of budgets for innovation (or innovative projects) across the departments, explicit time guidelines for percent of time individuals should put into innovation (Google, Agilent and 3M). Although a small item, we often can gage the innovation Culture around the tolerance for unique people, unique positions, and unique titles. Also small, but often a dead give away is observing behavior in meetings. Do good ideas prevail regardless the size of the business card?

One of the strongest indicators is trust: The trust that management places in teams and the degree in which the organization supports delegation. This form of trust is not abdication, but rather agreeing with explicit roles and setting up clear boundary conditions so that if the teams stay within the boundaries, they are left alone. Along with this enlightened view of teams, we also find that Innovative Cultures have explicit processes for harvesting, elevating, and sanctioning great ideas.

As you have read in this piece, I am sure you are wondering how you take your organization from where you are today, to a place of greater innovation.

How do you set up an Innovation Culture?

• Enlist the support of top management for the basics (trust, feedback, and no politics);

• Perform a 360 degree assessment of top managements support for innovation and act to close any gaps;

• Reinforce these environmental factors with explicit budgets for innovation at the department level (our rule of thumb is 2-10% of budget;)

• Reinforce the budget allocations with explicit time allocation for all individuals for personal time to be spent on innovation (our rule of thumb is 5-20%);

• Create a process to filter ideas and harvest and act on the good ones rapidly;

Although cultural change is one of the most difficult things an organization can do, it is still possible to make changes given the will and time. The best approach is to make focused changes in the culture, and measure the impact on innovation. Doing this kind of step-by-step change management is easier and can actually be fun. There is no better time than the present to start.

There must be some really great examples you are aware of Innovation Cultures. What examples have you seen? What, in your mind, makes a culture truly innovative?

John Carter has been a CEO, founder, and inventor. As Principal of TCGen, he has advised leading technology firms, serves on the Board of Directors of Cirrus Logic, and was the co-inventor of the Bose Noise Cancelling Headphones.